1 What is managerial economics?
After successful completion of the module, students are able to:
- Explain what managerial economics is all about.
- Discuss the use of managerial econmics for their private and professional lifes.
- Explain how managerial economics relates to other disciplines of social sciences.
Well, that’s a question that can’t be answered definitively. It is whatever you would like it to be. Each instructor may find a slightly different way to define what it is. However, there are some conventions for what many people mean by it. To find out what most people mean by managerial economics, public and general sources like Wikipedia are a good source.3.
More recent, many people start using ChatGPT for good reasons. Korinek (2023) discusses the use of it for academic research. Lets see what ChatGPT and Wikipedia say about managerial economics.
1.1 What is managerial economics for ChatGPT?
Define managerial economics.
ChatGPT: Managerial economics is the application of economic theories, concepts, and analytical tools to solve managerial problems in business organizations. It involves the study of how economic principles can be applied to make better decisions regarding the allocation of resources, production and consumption of goods and services, pricing strategies, market analysis, and other strategic issues facing firms. The main goal of managerial economics is to provide managers with a framework to analyze business problems and make informed decisions that will maximize the firm’s profits and shareholder value. It is an interdisciplinary field that draws from economics, finance, accounting, statistics, and other related fields to help managers understand the economic environment in which they operate and make effective decisions.
What distinguishes managerial economics from Microeconomics and Macroeconomics?
ChatGPT: Managerial economics is closely related to both microeconomics and macroeconomics, but it differs from these two branches of economics in several ways:
Scope: Microeconomics focuses on the behavior of individual economic agents, such as households and firms, while macroeconomics focuses on the behavior of the economy as a whole, including variables such as aggregate output, employment, and inflation. Managerial economics, on the other hand, focuses on the decision-making behavior of individual firms, and how they interact with the market and other firms.
Purpose: The purpose of microeconomics is to study the allocation of resources among different uses and the interactions of individual agents in the market, while macroeconomics is concerned with the overall performance of the economy. Managerial economics, on the other hand, is concerned with applying economic principles to solve managerial problems in business organizations, such as pricing strategies, cost analysis, and production decisions.
Analysis: Microeconomics uses mathematical and graphical models to analyze the behavior of individual agents in the market, while macroeconomics uses aggregate economic data to study the overall performance of the economy. Managerial economics, however, uses both microeconomic and macroeconomic tools and techniques to analyze and solve specific managerial problems.
Perspective: Microeconomics takes the perspective of an individual economic agent, while macroeconomics takes the perspective of the entire economy. Managerial economics, on the other hand, takes the perspective of the manager and the firm, and how they can use economic principles to make better decisions.
In summary, while managerial economics draws from both microeconomics and macroeconomics, it focuses on the specific issues facing firms and their decision-making behavior, making it distinct from these other two branches of economics.
1.3 Simple definition of managerial economics
To me managerial economics is economics for managers. That means, any sort of method, information, and knowledge from economic research that can help managers somehow in making good decisions and achieve their goals can be considered to be part of managerial economics. So, now we can discuss what economics is all about and what therein can be helpful to managers.
1.4 What is economics?
All economic questions arise because we want more than we can get. Our inability to satisfy all our wants is called scarcity and because of scarcity, we must make choices that depend on the incentives we face. An incentive is a reward that encourages or a penalty that discourages an action.
Economics is a social science, and as in all social sciences, many of the terms used in it are poorly defined. The following quotes can demonstrate that:
John Maynard Keynes (1883-1946): “The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps it possessors to draw correct conclusions.” Keynes (1921)
Alfred Marshall (1842-1924): “Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing.” Marshall (2009, p. 1)
Gary S. Becker (1930-2014): “Economics is all about how people make choices. Sociology is about why there isn’t any choice to be made.” Becker (1960, p. 233)
Colander (2006, p. 4): “Economics is the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society.”
Parkin (2012, p. 2): “Economics is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices.”
Gwartney et al. (2006, p. 5.): “[E]conomics is the study of human behavior, with a particular focus on human decision making.”
Backhouse & Medema (2009, p. 222): “[E]conomics is apparently the study of the economy, the study of the coordination process, the study of the effects of scarcity, the science of choice, and the study of human behavior.”
Greenlaw & Shapiro (2022, ch. 1): Economics seeks to solve the problem of scarcity, which is when human wants for goods and services exceed the available supply. A modern economy displays a division of labor, in which people earn income by specializing in what they produce and then use that income to purchase the products they need or want. The division of labor allows individuals and firms to specialize and to produce more for several reasons: a) It allows the agents to focus on areas of advantage due to natural factors and skill levels; b) It encourages the agents to learn and invent; c) It allows agents to take advantage of economies of scale. Division and specialization of labor only work when individuals can purchase what they do not produce in markets. Learning about economics helps you understand the major problems facing the world today, prepares you to be a good citizen, and helps you become a well-rounded thinker.
Backhouse & Medema (2009, p. 222): “Perhaps the definition of economics is best viewed as a tool for the first day of principles classes but otherwise of little concern to practicing economists.”
Jacob Viner (1892-1970): “Economics is what economists do.” Backhouse & Medema (2009, p. 222)
Parkin (2012, p. 2): “Microeconomics is the study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments. […] Macroeconomics is the study of the performance of the national economy and the global economy.”
Although many textbook definitions are quite similar in many ways, the lack of agreement on a clear-cut definition of economics does not really matter and does not necessarily pose a problem as
“[E]conomists are generally guided by pragmatic considerations of what works or by methodological views emanating from various sources, not by formal definitions.” Backhouse & Medema (2009, p. 231)
The important questions of economics: How do choices end up determining what, where, how, and for whom goods and services get produced? And: When do choices made in the pursuit of self-interest also promote the social interest?
Usually, it is not a good idea to cite Wikipedia in an academic paper, because everything written down in Wikipedia has to come from some other source. So Wikipedia is usually only a secondary source. However, general definitions of an important topic are sometimes worth citing, as they can be seen as a definition that is at least accepted by a more or less large group of administrators who can make changes to Wikipedia↩︎